Have you inherited a home recently, and you’re not sure what to do?
We understand. Inheriting a house can feel like both a blessing and a burden. It’s cool that you’ve received a tangible asset that could significantly impact your financial future. But also, a home comes with responsibilities, upkeep, and decisions that require careful consideration.
There are options, the most common being that you’ll live in the house, sell it, or maybe rent it out.
All of these options have their merits, and as local property management experts, we’re often asked for help in deciding what to do with such a valuable (and sometimes unexpected) asset.
Here’s what we can tell you.
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Assess Your Situation
The decision about what to do with this house will depend on your current living and financial situation. So, the first step is to take stock of your personal circumstances. Inheriting a property can create both opportunities and challenges, so it’s important to reflect on several key factors that will influence your decision.
- Do You Have the Time and Resources to Manage the Property?
Sell the home and you never have to think about it again. Move into it, and it becomes yours. But if you decide to rent it out, you’re making a commitment. Managing a rental property requires time, effort, and some degree of expertise. While you may not be involved in the day-to-day operations like finding tenants, collecting rent, or handling maintenance, being a landlord still involves oversight and occasional intervention.
- Think About Your Finances
Would you make some good money by selling the property, or are you inheriting a house with a lot of debt and little equity? If you rent it out, can you afford the ongoing costs of maintaining the home? You’ll want to think about property taxes, insurance, utilities, and any necessary repairs or renovations.
- What’s the Current Market Like?
Before deciding whether to sell or rent out the house, it’s important to understand the current real estate market conditions. A property’s rental potential depends on factors such as location, demand, and property type. If the sales market is particularly strong, you could make some money off an immediate sale. If it’s sluggish, renting out the home can provide cash flow in the short-term and ROI in the long-term.
By considering the market, the competition, the condition of the house, and its appeal to buyers and renters, you’ll gain a better understanding of whether renting or selling the house makes sense financially, and whether you have the means to do so successfully.
Evaluate Your Long-Term Financial Goals
Selling a house for the right price and in the right market gives you immediate profits. Renting out an inherited house can provide you with a steady stream of income over time. However, it’s essential to think about how each decision aligns with your long-term financial goals.
- Is Renting a Property Part of Your Investment Strategy?
If you’re looking to build long-term wealth, renting out the house could be an excellent opportunity. In many cases, rental properties appreciate over time, and in addition to the rental income, you can benefit from tax breaks related to property depreciation, repairs, and other related expenses.
However, managing rental properties isn’t a passive income stream. It requires ongoing attention and potential upfront costs (such as repairs, updates, or improvements) to make the house suitable for tenants. It’s also worth considering whether you want to expand your real estate portfolio or just keep this one property. Some people inherit properties and decide to sell them quickly because they aren’t interested in real estate investment, while others see it as the first step in growing their assets.
- How Does Renting Compare to Selling?
When deciding between renting, selling, or living in the house, it’s helpful to weigh the potential financial returns of each option.
By renting the home, you could generate monthly cash flow, which can help cover the mortgage, if there is one, property taxes, and other expenses. Plus, if the property appreciates over time, your equity will grow. However, keep in mind that rental income may fluctuate, especially if there are vacancies or tenant turnover.
Selling the property could be a lucrative option. You could cash out and reinvest the proceeds into other assets, pay down debt, or fund other financial goals. However, selling means losing the property, which may not align with your long-term wealth-building objectives.
If the house is in a desirable location and suits your personal needs, moving into the property might offer the best solution. This option would eliminate your monthly housing expenses (rent or mortgage payments), but it also removes the income-generating potential of renting out the property.
By assessing how renting aligns with your other financial goals, you can make a more informed choice.
Logistics and Details During an Inheritance
Before deciding what to do with your newly inherited home, it’s important to work through several legal and administrative tasks. Start by clarifying the property’s legal standing. Make sure the title has been transferred to you, or verify that the transfer process is underway. Determine whether the home passed to you through a will, a trust, or a probate proceeding, as each situation comes with different requirements and timelines.
If the legal steps feel overwhelming, consider consulting an estate attorney who can walk you through the process and explain what to expect. We can make a referral if you’d like some help with this part of the process.
You should also take a close look at any financial obligations tied to the property. Identify existing debts, including the mortgage balance, and find out whether there are any liens on the home. Confirm the status of property taxes and check for additional loans, such as home equity lines of credit. Gathering this information may take effort, but it’s essential. You’re not just receiving the house, you’re also taking on any responsibilities attached to it.
Finally, evaluate the home’s physical condition. If you haven’t visited the property, schedule a walkthrough, and consider bringing in a professional inspector for a thorough examination. Note any repairs that are needed right away, along with potential safety issues that should be addressed promptly.
Why We Recommend Renting
If you know you’re going to move into the home, your decision is made. If you want to sell and not think about this inherited property any more, we can help you get started.
But, if you’re interested in renting out the home you now own, we would love to share our resources and expertise.
Becoming a landlord may not have been part of your plan, but turning your inherited house into a rental could be the most financially advantageous option in the long run, especially with an investment in a market as valuable and expensive as ours. Here’s why we always encourage people to strongly consider renting.
- You Create a Stream of Passive Income
Monthly rent checks can provide a consistent cash flow. If the property is paid off, or even if there’s a reasonable mortgage, your net profit could be substantial. This allows you to bank some savings for the future. It also gives you leverage if you decide you want to grow your portfolio of rental properties.
- You Build Long-Term Wealth
Real estate typically appreciates over time. While you earn rental income, you’re also benefiting from property value growth. This area of California has some of the highest home prices in the country. When you inherit a home, you’re starting off in a pretty strong position because you don’t have to go out and acquire the asset.
- There Are Tax Advantages
Rental properties come with numerous tax deductions. You can write off mortgage interest, property taxes, repairs and maintenance, depreciation, and property management fees. Consult a tax professional to maximize your deductions and understand how your new rental affects your tax liability.
- It’s an Opportunity to Preserve a Family Asset
Whether you inherited the house you grew up in yourself or you’re getting a piece of property from a cherished loved one, there may be an emotional connection you want to preserve. Keeping the property in the family can offer some serious emotional value. Renting it out allows you to generate income while still holding onto the legacy.
- Flexibility for the Future
Just because you’re renting it out now doesn’t mean you have to rent it out forever. You may sell in a year or five years. You may have an adult child decide to move into it. Maybe you’ll use it for a retirement home later on. Life changes. Renting instead of selling right now gives you options that selling does not.
Inheriting a house can be a significant financial event, and deciding what to do with it requires careful thought. Renting out the property can be a lucrative option, but it’s not without its challenges. By assessing your personal situation, understanding the long-term financial implications, and preparing the property for rental, you can make an informed decision that you’re comfortable with.
Let’s talk through your specific circumstances. Contact us at Real Property Management Choice.
This content is provided for general informational and educational purposes only and does not constitute financial, legal, tax, or investment advice. Readers should consult with licensed professionals regarding their specific circumstances.
We are pledged to the letter and spirit of U.S. policy for the achievement of equal housing opportunity throughout the Nation. See Equal Housing Opportunity Statement for more information.
